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A mixed finish to a rebound rally on Wall Street points to mild pressure on Australian shares as caution prevails ahead of a US Federal Reserve policy update tonight.
ASX futures eased 14 points or 0.19 per cent after the Dow and S&P 500 gave up early gains.
Oil and precious metals rebounded. Iron ore closed unchanged at a 16-month low. The dollar slipped back towards 72 US cents.
Wall Street
US stocks hit session highs in early trade, but quickly ran out of steam as investors waited to see whether the Fed announces plans to reduce support for the economy tonight.
The S&P 500 faded to a fourth straight loss, shedding four points or 0.08 per cent. The close was the benchmark’s lowest in nine weeks.
The Dow Jones Industrial Average fell 51 points or 0.15 per cent. The Nasdaq Composite held up best, retaining a gain of 32 points or 0.22 per cent.
The Dow was up more than 300 points in early trade before market jitters re-emerged. US indices suffered their heaviest falls since May on Monday, diving 1.7 per cent.
“People have been preconditioned to buy pullbacks for most of the last year plus,” Michael James, managing director of equity trading at Wedbush Securities, told Reuters. “But that overhead nervousness is still there, and that’s why we’re not seeing material further upside.”
Stocks on both sides of the Pacific have fallen to multi-month lows amid worries that the slow implosion of Evergrande, China’s second-largest property group, could cause contagion, undermining risk appetite and demand for raw materials.
The mood improved over the last 24 hours as Hong Kong’s Hang Seng index bounced 0.51 per cent off 12-month lows and Evergrande cut its fall to 0.44 per cent. The property group is expected to miss interest payments tomorrow.
US investors are also nervous about tonight’s Fed policy announcement. The bank may announce a timeline for reducing support for the economy. The Open Market Committee is also due to release a quarterly update to its economic forecasts. The so-called dot plot has the potential to add to market volatility if it foreshadows official rates will rise sooner than the market expects.
″We’re going to have to see proof that the Fed dot plots don’t come out in a way that spooks the market,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, told CNBC.
Australian outlook
A cautious session likely coming up, with the market’s two main worries – the Fed and Evergrande – still unresolved. A hawkish update tonight from the Fed has the potential to cause further market disruption. The Chinese government appears willing to let Evergrande fail, an event with uncertain consequences.
Buyers returned yesterday, scooping up shares at 16-week lows. The S&P/ASX 200 ended more than 80 points off its session low with a gain of 26 points or 0.35 per cent.
Overnight, a rebound in oil helped lift the US energy sector 0.37 per cent. Brent crude bounced 44 US cents or 0.6 per cent to US$74.36 as US inventories continued to tighten.
“It’s one of those rollercoaster days as the market… seemed confused over how to interpret two opposing forces: the concern over the effect of China’s Evergrande possible default and the tight U.S. supply signs,” Nishant Bhushan, oil markets analyst at Rystad Energy, said.
Sector gains elsewhere in the US were slim. Healthcare edged up 0.14 per cent, consumer discretionary 0.08 per cent and tech 0.03 per cent.
Industrials took the biggest hit, falling 0.7 per cent. Materials dropped 0.18 per cent and financials 0.14 per cent.
Reserve Bank Assistant Governor Michele Bullock is due to address an online event at 12 pm AEST.
IPOs: two new listings today. X2M Connect, which lists at 11 am AEST, is an ‘Internet 0f Things’ company focussed on servicing Asia-Pacific utilities. Widgie Nickel, listing at 11.30 am, is an explorer with prospects in the Eastern Goldfields nickel sulphide belt.
The dollar was trading near a three-week low this morning, down 0.36 per cent at 72.33 US cents.
Commodities
Gold recorded back-to-back gains as China’s property woes and uncertainty over the Fed meeting kept havens well bid. Gold for December delivery settled US$14.40 or 0.8 per cent ahead at US$1,778.20 an ounce. The NYSE Arca Gold Bugs Index closed unchanged.
“The potential for a financial contagion inside China, ongoing infection issues in China, significant global equity market declines and the potential for significant Chinese stimulus provide the gold bulls with plenty of ammunition,” analysts at Zaner wrote.
Industrial metals remained under pressure. Benchmark copper on the London Metal Exchange fell 0.7 per cent to US$8,982.50 a tonne. Aluminium lost 0.7 per cent, nickel 1.2 per cent, lead 1 per cent, zinc 1.3 per cent and tin 0.2 per cent.
Iron ore held steady at a 16-month low amid reports of an emerging Chinese steel glut. The spot price for ore landed at Tianjin held at US$94 a tonne, less than half where it traded in May.
BHP‘s US-listed stock bounced 0.93 per cent and its UK-listed stock added 0.43 per cent. Rio Tinto continued to slide. falling 1.06 per cent in the US and 0.15 per cent in the UK.
Uranium stocks steadied in the US after sharp falls on Monday. The Global X Uranium ETF (URA) rallied 2.14 per cent. Uranium Royalty rallied 6.08 per cent, Uranium Energy 3.01 per cent and NexGen 1.74 per cent. Denison Mines closed flat. Cameco declined 1.08 per cent.
